Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28

Tesco sought to remove 'retained pay' from employees who had relocated in 2007 by dismissing and rehiring them without this benefit. The Supreme Court held that an implied term prevented Tesco from exercising its termination power to defeat the promised permanent retained pay, and granted an injunction restraining such dismissals.

Facts

In 2007, Tesco embarked on an expansion programme involving the closure and opening of distribution centres. To retain experienced staff, Tesco offered ‘retained pay’ as an inducement for employees to relocate rather than accept redundancy. The retained pay term, incorporated into employment contracts via collective agreement, stated that retained pay would ‘remain a permanent feature’ of contractual entitlement, changeable only by mutual consent or specified circumstances. In 2021, Tesco announced its intention to remove retained pay by dismissing affected employees and offering re-engagement on terms excluding retained pay (‘fire and rehire’).

The Claimants

USDAW (the recognised trade union) and three individual employees brought proceedings seeking declarations regarding their retained pay entitlement and an injunction restraining Tesco from removing retained pay through dismissal and re-engagement.

Issues

The central issues were: (1) whether the express retained pay term, promising permanence, was qualified by Tesco’s express right to terminate employment on notice; (2) whether a term should be implied preventing Tesco from exercising its termination power to remove retained pay; and (3) whether an injunction (amounting to indirect specific performance) was an appropriate remedy.

Judgment

The Supreme Court unanimously allowed the appeal and reinstated the injunction granted by Ellenbogen J at first instance.

Interpretation and Implied Term

Lord Burrows and Lady Simler (with whom Lord Lloyd-Jones agreed) held that interpreting ‘permanent’ as lasting only as long as the contract, terminable at Tesco’s will, would deprive the promise of any substance. They found it necessary to imply a term by fact, applying the business efficacy test, that Tesco’s contractual right to terminate on notice ‘cannot be exercised for the purpose of removing or diminishing the right of that employee to receive retained pay.’

“[I]t is inconceivable that the mutual intention of the parties was that Tesco would retain a unilateral right to terminate the contracts of employees in order to bring retained pay to an end whenever it suited Tesco’s business purposes to do so.”

Lord Leggatt, concurring, emphasised the purpose of the promise:

“The minimum, however, that employees promised that retained pay would remain a permanent contractual entitlement would reasonably expect is that they would not, by the very fact of possessing that entitlement, be exposed to greater risk of having their employment terminated than if they did not have that entitlement.”

Remedy: Injunction as Indirect Specific Performance

The Court held that, although the injunction amounted to indirect specific performance of an employment contract (generally barred), an exception applied here because: (1) Tesco retained confidence in the employees (evidenced by offering re-engagement); and (2) damages would be inadequate given difficulties in assessment and irrecoverable non-pecuniary loss.

“In our view, damages would be an inadequate remedy in this case. To work out the quantum of damages would require speculation as to how long the employees would have otherwise remained employed by Tesco…”

Implications

This case establishes that an employer’s express power to terminate employment on notice can be impliedly limited where its exercise would defeat the purpose of another contractual promise. The decision reinforces protections for employees against ‘fire and rehire’ tactics designed to strip valuable contractual benefits. It also confirms that injunctions amounting to indirect specific performance may be granted against employers where mutual confidence remains and damages are inadequate.

The judgment aligns with earlier authorities on permanent health insurance benefits (Aspden, Awan) and extends the principle to other valuable contractual entitlements promised as permanent. It signals judicial willingness to scrutinise attempts to circumvent contractual commitments through technical reliance on termination clauses.

Verdict: Appeal allowed. The injunction granted by Ellenbogen J at first instance was reinstated, restraining Tesco from giving notice to terminate employment contracts for the purpose of removing or diminishing the employees’ right to receive retained pay.

Source: Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28